Take Control of Your Future: Buy Your First Sober Living Home Using OPM

I'm super excited to talk to you guys about how to get some locations up and running. I'm going to talk through what we do, which is sober living. But I have talked to so many people this week who have worked really hard on building the relationships with funding sources and referral partners so that they can fill up a home. But they are having so much trouble finding the location. Right. They're having a really hard time ever getting a place that actually makes sense to house the people. And if you're doing one without the other, finding referral partners without actually finding a location or vice versa, you have a home but you never connect with anybody so it stays empty. Your business just isn't going to take off. And so I wanted to just jump on a zoom and talk through how you can find a location. Some people are leasing, which is totally cool. You can talk to landlords. I want to talk about how you can actually buy a property with little to no money out of your own pocket. That's what I've been able to do personally with five homes in one year, basically all using someone else's money and even how you can do creative finance, takeover payments and do some other cool stuff. So we'll talk through all of it. It's going to be very high level. We're not going to go deep into the weeds. But I will give you examples and we will have time for questions at the end of this. We had well over 50, 50 people register, so I'm expecting to see at least 25. It's usually the way it works, half the number. So I'm going to have plenty of time. I have nothing to do after this. So we'll run probably an hour, maybe longer so I can answer all the questions, whatever you guys need. And so let's talk through how to fund your investment deals, whether it's group home, so we're living home, whatever that looks like with other people's money. And why am I here? Why should he listen to me? Just a little blurb on me. I'm a best selling author of a real estate book, a real estate agent since 2011. So I've been in real estate for a long time now. Brokerage owner since 2016 with over 100 agents in our office. I own eight sober living homes presently. Always looking for more. Looked at one this morning. Launched five sober living homes within a 12 month period back in 2021. That's how we got started. And then I'm the founder of a coaching program called Sober Living Riches where I Teach people how to do the same thing. And this is, I'm not just saying I'm in real estate. You can actually see running my real estate team. You can see my book here. Yes, that is Barbara Corcoran from Shark Tank. She's awesome. We shot a commercial together. So because sometimes people think it's photoshopped, I have the actual commercial here showing that it's not photoshopped. We actually walked around together and talked about that's really hurt. And so I just wanted to show you guys like this is all I do. This is my full time thing. I love real estate and we do it at a high level and that's that. So why do I love sober living? And just for a brief overview for those who maybe don't know, this is what it looks like, right? We have an example here of a four bed, two bath home housing eight people. This is a conservative estimate because we can get more per month than $850 per person. And we can typically house nine because we could put three in a master bedroom and they can share that bathroom. But just super conservatively, if you look on the left hand side, the average rent in the United States today is about $1,700. So let's say you owned this property for a while. Your piti, principal, interest, taxes, insurance, full payment is fifteen hundred dollars a month. You're cash flowing two hundred bucks a month. I used to think this was the path to freedom. 200, $300 a month at a time. And I had a plan to buy 67 homes so that I could make $300 a month and make, you know, per property and make $20,000 passively as a landlord. Didn't work out that way. And thankfully I didn't have to fully do that plan because I discovered what's on the right side here, which is sober living homes where we can. With eight people paying $850 a month, even if they were paying out of pocket. You now take your GROSS Rents to $6,800 a month. And if you include your PITI and you and an extra $500 for utilities, you are now cash flowing. Not $200 a month, you're cash flowing $5,000 a month. It is insane. I tell people these numbers or I run a deal calculator. And true investors who are also buying long term rentals, their minds explode because it doesn't make sense. It doesn't compute to have a return that high. But I think that's just the cherry on top because when we're talking about sober living. The thing that really matters is these are lives. These are people who really need the help. They typically have nowhere else to go. And the way we do it, you get massive community impact, but you also get guaranteed government income because we're partnering with local government in order to tap into the funds for sober living. We never have to chase down rent because we're plugged in with the government and they are direct depositing or sending a check and then third party support, they provide the case management, they provide all the other supports that would require a license. And then we can just provide the housing, pay for utilities, pay for Internet, and make sure our people are keeping the house clean, safe, and sober. This is why sober living is so amazing. There's no barrier to entry in most states. It does not require a license. And literally, you can fill up a home within 90 days. There's so much housing that's necessary, which is why I'm teaching this. I just talked to a guy this morning. His name's Nate. He's an agent in my real estate office. We talk through how I do what I do, and he and I connected him with some people. He just got his first home set up and he's getting his first client's place next week. This can happen anywhere, and it's an amazing opportunity. I did not change the numbers here, so that should say 5,000, I think, or 4,800, one of those. But you see what I'm saying, and this is conservative. I have a home that I was renting as a traditional long term rental, making $600 a month, which was awesome. When rates went down to 2.75, we refied and it made our cash flow grow. But that same home now makes over $6,000 per month in cash flow. So that is the opportunity. That's why we're talking. But even if you know the opportunity, if you don't have a location, none of it matters because you can't house anybody and make that income. So let's talk through how we do it. Could you please, just so I know that you're. You're here and you're alive, can you please type A1 in the chat if you have purchased an investment property before and a 2 if you haven't and you want to learn how, and that's why you're here. That'll help me know who I'm talking to. Ooh, it's pretty evenly split. Lots of twos. Lots of ones. I like it. Okay, several of you have locations already. Or have bought an investment property before. That's awesome. And many of you are trying to learn how. So we'll speak to both. I will make sure this doesn't go over your heads and there, there will be time for question. Awesome. Important legal stuff. I have to say this, this is not considered investing advice. Talk to a cpa, talk to a financial advisor, all that stuff. Get that out of the way. Done. So you have found a deal. What does that look like? If you are looking to find stuff on the market, off market, typically you don't know what makes the most sense in terms of how to finance it until you found it. So you really do need to be looking consistently and identifying locations before you think you know financing and all of that. Because sometimes the deal itself is going to determine what type of financing you need. It does take money to make money. That is a true statement. It doesn't have to be your money. That's what I say. So you find a property, then what? And so let's just talk through some possible sources. Right. To fund the deal. Cash for sure. Easiest, cheapest, even if you have 100% of the cash, does it really make sense to tie it all up in one project? Or could you get a better return through leverage? That's why loans exist. That's why. So you can scale a little bit faster. Home equity stocks or other investments. Right. A good option. But they might require you to sell or liquidate. Lock in a gain which would have tax implications or a loss which is never fun and you'd rather keep the investment honestly. Right. So it doesn't make sense to just cash in your 401k to buy an investment property. It might make sense if you have a large enough portfolio to take a line of credit against your equities, your stocks. But you really need a big number in an account to make that make sense. You could do an ira. A great option is if you have a self directed Iraq. You can definitely fund projects with that. A lot of people don't know that they can do a self directed 401k or IRA and buy real estate with it. There's a certain way it needs to happen to make sure it's free of all the tax implications. But you can grow your portfolio that way. Again, that requires your own money. Friends, family and partners is another good option. But right, you might have to split the profits with that partner. Often higher cost than actually just getting a loan with interest. And multiple partners always adds complexity. I actually just talked to somebody who they have a partner in an Airbnb, that partner's going through a divorce and now they have to figure out a way to sell off that partner's portion. And so it's creating a headache for this other partner who's got no reason to sell and now he's got to figure out what to do. So it just adds complexity. If you have partners, then there's loans, right? They cost more than cash, but are often the best combination of speed and leverage, cost and convenience. I like loans. I use loans quite often. We'll talk through that. But what I love more is creative finance. Right? You can buy a home without using your own cash, credit or credentials. It's a pretty awesome way to build your portfolio. Are there any questions so far about these possible ways to fund a deal? Feel free to, to unmute or raise your hand and I can answer your question. I am, actually. Okay, if this is a conversation and not a lecture, I prefer audience participation. But if you're tracking, just, I don't know, give a thumbs up or something. And then possible loan sources. Traditional banks are a good source, right? But you will likely need a track record of success with similar projects, good credit and at least 20 or 25% of the project cost in cash. It says 25 because although you might need 20% down on an investment property, usually a property is also going to need a little bit of work and they're going to want to see reserves. They're going to want to see reserves means X amount of months worth of payments. So whatever your payment's going to be your piti in the bank just sitting there that you won't use for your down payment. They want it there after you buy the place. And so there's sometimes very large reserve requirements. Bank loans also usually require an appraisal, underwriting at least three weeks to close. Gosh, I've heard horror stories of 90 days to close on a property, which can kill some deals. And then many rehab deals won't qualify for a traditional loan. And I've bought major fixers that many of them would not qualify for any kind of traditional loan. You'll most likely need a commercial line of credit, which you can establish after you've done some successful deals. Good question, Michael. Do banks usually expect more than 20% down for rental properties? Typically it's 20% down if you're buying it brand new. If you're refinancing, they want 25% equity, which is also known as 75% loan, to value. So somewhere between 20 and 25% equity is what they're looking for because their job's to protect themselves. Right? Other possible loan sources Private or hard money loans. This is how I've bought most of my properties. Lenders are private individuals or specialized companies that lend to investors for fix and flip and rental deals. I look at the difference between private money and hard money as a private money lender is an individual lending their own money and a hard money lender is an institution lending other investors money that has been pooled together to be able to fund more deals at scale and then a DSCR loan. Not many people, I've learned, have heard about this. It's become a little bit more popular. DSCR means Debt Service Coverage Ratio. What that means basically is the income on the property will meet or exceed the costs. So as long as you have a one to one ratio of income to expenses, meaning your gross rents will offset the principal, interest, taxes and insurance on that property. Typically they will fund that deal. It's a commercial loan production, so it also doesn't go on your personal credit report, which I love. However, they will likely run your credit and use your FICO score as the determining factor for your interest rate. Higher fico, lower interest rate. But they are not looking at your income, your bank statements, your tax returns. It is purely based on the property, right? All of these are more expensive than traditional banks, but much faster and more flexible. And so I've definitely used all of these. These loans are based solely on the quality of the deal. That's why I love working with these investment specific lenders. And your credit may be checked, but if you have a good deal and even a little cash, you can often get funding. No cash to invest. It's time to find a partner or wholesale. The deal. Another way to make money in real estate, you can sell the contract. Once you get under contract, you can sell it to someone else who will do the work and you can kind of, you know, make the split there. The spread between what you bought it for and what you're selling it for, which I've done that as well. Good way to build some cash when you don't have any. Instant injection of cash flow. And then creative finance, which is why everyone's here, I'm sure. Going back to the the chat real quick. How much higher are DSCR rates than traditional today? Actually, because rates are so high today, DSCR rates aren't that much higher. They are maybe 1 to 2 points higher than your traditional. I actually just got priced out. So seven and a half percent is kind of the Average rate for a home buyer right now, owner occupied loan, 8 and a half to 9% is what I'm seeing for DSCR right now, just so you know. So Creative Finance people hear this word a lot. It's popped up a ton and for good reason. I am part of a. A membership with Pace Morby. If you see my. My sub 2 hat up here somewhere or over. Yeah, over there. And he's taught a lot of people, thousands of people about Creative Finance. And I've used it in my own business. So there are kind of three major variations. There's seller finance, which is the agreement that allows the buyer to pay the seller installments. Right. You are actually taking title as the buyer. It is transferred to you. You go through a title company, all of that. However, the seller holds onto the note and you pay the seller, they become the bank, essentially. This is something that happens all the time, all around the country. You just don't hear about it all the time. So I just want. If you've never heard about it before, this is possible in today's market. I'm seeing it more and more and more. In fact, the property I walked this morning, I asked the real estate agent who brought it to me, can you talk to the seller about seller finance or the next step if they have a mortgage Subject to. So seller finance kind of. It works really well on properties that are free and clear, paid off, no mortgage. The seller becomes the bank for a property that has an existing mortgage. That is where subject to comes in. That is where the investor or the purchaser takes rights to title for a property while the seller's existing mortgage stays in place. We keep it there. It is not an assumption. We are not using our income and our credit to assume the loan. That is a lengthy process. It takes forever that it's not always possible to assume the loan anyway. So Subject to actually leaves that financing in place in the seller's name. And you do take title and you get all the benefits of having title when you close, meaning you can write off depreciation, you can do cost segregations. There's all of these amazing tax benefits of owning real estate. And if you can keep the financing in the seller's name as well and just simply take over the payments, it is a huge benefit. And a lot of times it's a win for the seller as well. If that seller was going to. Because people ask, well, why would a seller ever do that? Leave their name on the loan as if that seller was going to have a massive capital gains event this is actually a really good way to spread out their capital gains over time and make it less of a hit for them. And so it can be a win win. You see this all the time in larger commercial deals multifamily for that specific reason for the tax avoidance, right, legal way to avoid taxes. It can also help if somebody doesn't have equity or wants a higher price than the market is willing to pay. So let's say a home's been sitting on the market for a long time. Nobody wants to buy this thing because it needs a lot of work, but the seller doesn't have equity and they can't sell it without bringing money to the table. They don't have that money. It's a great way to solve their problem while also getting a great property. And for you, it's a great way to lock in a 3, 3 and a half, 4% interest rate in a time where rates are 7 and a half, 8% right now by taking over that loan. A lot of homes right now, the biggest asset they have is a low interest rate. I've heard stats that over 70% of homes today have a rate below 4%. So there's a huge opportunity to transfer wealth and to buy real estate by using these creative finance tools. If you see the background, it's art, right? It's a little. You see the brushes and everything. With creative finance, you can be as creative as you want to. Literally, you can negotiate every little thing. And that's what I love about creative finance. Anthony asks, just going back to dscr, does it work with the group home model? Yes, it does. You did. And we'll talk through how to do that because you don't want to necessarily tell the lender, oh yeah, I'm running a group home. They don't like that so much. I'm not saying lie. We can be honest. I'll just tell you how we do it. So if we're looking at typical hard money terms, you know, commercial uses only non owner occupied real estate held for investment only, you can not get a hard money loan on a property you intend to occupy. It's illegal. After 2011, 2010, we had these things that come out called the Dodd Frank act and all these different rules around mortgages for owner occupied homes. So they can no longer lend money on a home that you are personally going to occupy without jumping through all these other hoops. So hard money loans will not allow you to live in them. First deed of trust note in terms similar to a bank, meaning they're going to be in first position. When we talk about positions, usually the mortgage from a bank is in first position. If you have like a seller carryback, meaning they'll cover part of whatever your down payment was, something like that, that would be in second position. And they can't foreclose on you for whatever reason unless they get the agreement of the first position lender. So a lot of times, I mean, I got in real estate back in 2011, it was rare. It was like seeing a unicorn if you found a house with equity at that time. And so a lot of short sales, a lot of foreclosures and a lot of first and second loans because people were taking out their equity and doing whatever, buying boats, buying jet skis, building on not typically adding value to their home. They were just spending the money because they thought next month their home was going to go up another $20,000. Hence the problem that that created. But you couldn't get the first to foreclose or the second couldn't foreclose without going to the first and saying, hey, let's negotiate. And then you'd have to do a short sale on both of those or something like that. So that's what the positioning means. Maximum of 70 to 85% loan to value and then construction, hold back and draws for doing the renovations. So there are hard money lenders out there that will, and I've worked with them, plenty of them, they will give you most of the money for the purchase. You'll have to have some skin in the game. 10 to 15%. Even if you've never been, you know, never done a deal before, they'll still do that. And then they will do 100% of the renovations, which is awesome. Usually up to 75% of the after repair value or something like 90% loan to cost. All of the money for the purchase and the renovations, they'll do up to 90%. Right. Of that cost, you have to come in with 10%. Then they'll do 100% of the actual the renovations. But the way the renovations works is it's a draw. You start by paying the contractor. They do some work, the lender sends somebody in to verify that the work was done and then they give that money back to you through a draw to which then you can go and give that money back to the contractor to finish the next step and then have the lender do another draw. So that's how you can kind of recycle the same money to keep paying the contractor. You're financing all of it, but you will need some money to get the contractor started. Now that money doesn't have to come from you. And so when people hear this like, oh, well, I don't have any cash, I can't do this. What you can do is get a second lender, a private lender, to give you the cost of the holding fund, like the cost it will take to pay the interest only payments to the hard money lender, your closing costs and your holding costs, your utilities, whatever needs to be on while the work is being done. So you can get the 90% from the hard money lender, the 10% and the holding cost from a second position private lender. And now you can do a deal with none of your own money involved. I've done that plenty of times. And you offer just a good return to that second position lender, you'll do what's called a promissory note, meaning there is an agreement in writing about what you're going to pay and when you're going to pay it back, all of that and then you're good to go. And so that is a great way to use both hard money lenders and private money lenders to buy a property. Credit of the borrower is not as important as viability of the deal. Points and some interest are normally prepaid at closing, which is true. I have a private money lender who will fund 100% of my deals. He wants 10% interest only every single month and 2 points up front. So if it's a $400,000 home, I'm paying him $8,000, 2 points at closing for using that, that money. But I can either bring in a second position lender to cover that cost for me at closing, or because I'm a real estate agent, if I'm getting paid 2 and a half, 3% and this home is on market, I can take that commission and cover those points in my closing costs. So if you're a realtor, that's a huge benefit for you if it's something that's on the market. A lot of my purchases have been on the MLS. A 9 to 13% interest, 2 to 5 points depending on loan to value, experience, all of that, then the cost of the loan is directly related to the risk taken by the lender. So that 9 to 13% is. It's an average, but it's pretty fair. Even when interest rates were 3, 4%, hard money lenders were somewhere between 8 and 13%. And the points could be, I mean, depending on area. I live in California, I'm Buying homes that are 400, 500,000. So because they're bigger loan amounts, usually it's just one point. But I do know in areas with lower price points, the actual points charged by the lender tends to be higher because they want to get a good chunk of money up front. So if it's $150,000 house, I could certainly see somebody charging 2, 3, 4 points in that case. But your rate's probably going to be right there, between 9 and 13%. Other considerations. So with the property, with a properly structured loan, the return on your cash is much higher because you don't need as much. Right. And you won't, you often won't need another partner, friend, family, you keep more of the profit. You don't have to mix business and personal. Probably gets awkward at Thanksgiving if you owe somebody money sitting across from you at the table. And then if you do need a partner to bring cash in credit, etc. It's easier to find a partner with 50,000 than it is to find one with 500,000. There was a time I went to my private lender who's got like $5 million deployed and he had it all in other deals. He couldn't fund one of my deals. And so I needed to go and find a hard money lender, which thankfully worked out. But I also needed to raise that 10% from someone else to be able to cover the difference. So it's always good to have multiple funding sources kind of in your pocket so that when you find a deal, you can act on it real quick. Any other questions before we jump into looking at my actual deals? Any other questions so far? And I will say I've been able to do a good amount of deals working with private lenders the way I found my private lender. People always ask me that too. How did you find them? Real estate meetups. And he was a cash buyer himself. And so other buyers, if you see those bandit signs, we buy houses, those types of signs you can get on their buyers list, call them, tell them that you're a buyer, because that's usually a wholesaler, but sometimes it's also a flipper. And flippers who are really good at their jobs and make a lot of money and do a lot of flips, also have a lot of cash that they need to offset because they're going to pay a lot of taxes on it if they just, if they don't reinvest it and a lot of high capital gains. So a lot of really successful flippers also become private lenders so that they can put that money to work or they, they invest in like syndications, they invest in apartment buildings and things that can pay them a good return, but they can get a write off. What's your out of pocket cost on a single deal after all? Loan lenders and creative financing. Good question. Typically if I've structured it properly, it's zero. I have many infinite returns in my portfolio, meaning I didn't have any money in the deal or what I did have in the deal, what small amount I did have. I was able to pull money out when I refinanced and it covered more than covered what I put into the deal. And so my return on investment is, is infinite at that point. There are times where it's not possible or you get a low appraisal when you're going to refinance. Typically with the DSCR loan you only need to own it for four months before you can refinance. I know if you're trying to get a traditional long term conventional loan on a property that you just bought and fixed up, it could be 6 to 12 months depending on the lender, like the wait time before they'll let you refinance. So I also love DSCR loans because it just doesn't take that long which shortens the amount of time I have to pay that high interest. Right with my guy, 10% interest only every single month. Not always super fun. But again with sober living, it doesn't matter. It cash flows easily with a traditional long term rental. That's when you're going to run into trouble. And it probably doesn't cash flow at all right now if you're doing it that way. But that's interesting. Can you refinance a sub 2? You can. It just wouldn't be a sub 2 anymore. You would be replacing that seller financed or previously financed note with the new one. So you can do it. It's just I wouldn't recommend it. The whole reason of doing sub 2 typically is to get that low interest rate if rates ever drop below whatever my sub to mortgage is. Maybe I would. But honestly, you might be so far into the loan. Another benefit of sub 2, you might be so far into the amortization schedule that now you're paying more principal than interest. Like let's say that person refinanced, lived there for 10 years. That first seven years is mostly interest on a 30 year note. So 10 to 15 years in you are mostly paying principal now. And so it actually wouldn't make sense to refinance because now you're restarting the clock next seven years, you're just paying interest. You're not paying down the principal. So I would actually probably just hold on to that note and keep paying it. You're saying thinking of being able to cash out the second lender potentially. In that case I'd probably with, with for instance, we'll, we'll, we'll talk through one of my scenarios. I'll let you know what that looks like. Is it worth. This is a private. If you can, when you're posting your questions, please have them go to everyone so they can see is it worth to refinance with current rate if the loan only has 10,000 paid off but has the second lien for another 10,000. There's a lot more to that deal than I have than you're given. What's the purchase price? What's the after repair value? What's the length left on the loan? There's a lot you need to consider but we can maybe dig into that in the, in the questions section. So let's talk through some, some real life examples. I'm going to show you a flip first and I'll show you why I decided to go the direction of no longer doing flips. So this is a home in Fairfield, California that I purchased and I flipped and I did it all within 90 days. And this is what it looked like when I bought it. I don't like buying major renovations that take forever and require $100,000 worth of work. I like the little stuff, just cosmetic. This is what the bathroom looked like. This was another bathroom. This is after I did the work. We cleaned it up, put some mulch in, cleaned up the trim, clean up the backyard. That kitchen now looks like this. Stainless steel appliances, new handles, new paint, kept the same cabinets, just, just upgraded the look. New vanity, new flooring. Really simple stuff, right? But it looks so much better. New countertops. This is what it looked like, right? We purchased it for 370. The renovation was only $25,000. I worked with my private lender, an individual, he just wired the funds to escrow after we negotiated with the seller all that stuff. This was on the market. I look every day to see what's on the, on the mls and we got this deal. This was, I mean it was a few years ago. So 370 is not a price you see that much anymore for four bedroom home. But other expenses, $23,808 in mortgage or not mortgage but in, in the 10% interest only cost in my two points in my. Anything else that we had to, you know, come out of pocket for. But after the sales price of 480, right. We jumped the value over $100,000 by doing that $25,000 of work. This is why I love fixers, because you get a major discount. They thought this house needed 70 grand worth of foundation repairs because you would walk in the front door and you could literally, like, slide. It was like skiing downhill into the kitchen. What I know about that area, because I'm in real estate and I've sold homes in that area, is the builder use these support joists, these jacks that would rust out because they. They weren't galvanized. They would rust out and they would break. And so it was just the supports. The. The actual foundation was fine. So what they thought was a $70,000 fix, we fixed for $1600. And so you can find these amazing deals out there. And what, you know, a real estate agent who doesn't know anything about renovations might discount it. You can go in and get a great deal. So we made $61,000. Five. $61,502 in 90 days. Now, here's what I wish I did with this house. I wish I refinanced it and kept it, because that same home today is worth 600,000. And I bought it for 370. I only put 25 in. I could have refinance that. It would have been close, but I could have done it, and it could have been one of my silver living homes. So this is the. The thing that allowed me to. To really see the opportunity. I was doing these flips, and I was like, I gotta be able to hold onto these. Rates are so low at this point, it was under 4%, but later went under 3%. And I was like, God, I wish I held onto that. And so the next time, this is another home that was on the market, the next time I ran into one of these, I decided, I'm gonna hold it. I'm not flipping. And while you're looking at how disgusting his house is, that pool needed to be resurfaced. You could see there's huge water damage to the stucco. Just kind of walking around. I always do a video when I'm touring a house just so I can refer back to it. But also, if you get, you know, a bad assessment later on, you can use this video to fight that assessment and say, no, no, no. This was the condition of the home, which I just did on this very property. We bought it for 450. It was a failed short sale. They tried multiple times to get the bank to sell it for less than what they owed on it. Sat on the market for two years. The seller was able to buy another home before all their mortgage history went to crap by not paying the loan. And squatters had been in here. Nothing worked. Those appliances did not turn on. We found out a lot of the electrical in the house was kind of do it yourself terrible. Terribly done. And I'm not the best cameraman, but you can get the idea. Basically we went in here and did everything. New kitchen, new bathrooms, new paint, new floors and then resurfaced it. I actually took on this short sale myself because I had experience. That's me walking around. And we ended up actually look in this bathroom. This is crazy. The husband I guess needed to be able to just walk into a shower. So they created this whole separate enclosure right next to the toilet. Even though they had a bathtub and could have just put a shower line right there or change out the tub to something that's walk in. Like they just did some weird stuff. So we came in and did this. So this is that same kitchen today. New paint, new floors, new lights, new everything. That's the bathroom. This was our second sober living home. So this is the bathroom that the guys in the hallway share in those three bedrooms. Actually, let me go back this. If you can see this here. This was a formal dining room that we converted to a bedroom. So this was a three bed, two bath, 1800 square foot home that we converted to a four bed simply by. By putting French doors on this wall that was open. And so if you ever have unused space like that, because there's still a big like family room area behind where I am in this photo, you can create more space that way. And this home now brings in well over $10,000 a month top line. And we cash flow about 7 to 8,000amonth on it. We did the work, bought it with my private lender, did the work and then refinanced out about four months later into a conventional loan that I believe is at 3.625 right now. And so that's what's called the BRRRR strategy. So I didn't need any of my own money. Right. My private lender lends 100% of the purchase and the renovations. And so we didn't have to use any of our own cash. And then we refinanced out into a conventional loan after two conventional loans. And doing this because this was our first One was we finished that work in like January of 2021. This one we bought in February and finished up work in April, end of March or April because we're doing them so fast. The lenders were like, we love what you're doing and we can't credit you for any of the income you're making because it's brand new. And so that's when we switched to the DSCR type of loan. So now they can do a market rent study. An appraiser comes out and says, this is what homes are renting for in the area. And they use that as the basis of, does that meet or exceed your. Your debt service? And so I. The next two or three homes we bought, that's what we did. That's just shadows in the pool. But you can see the pool was resurfaced, cleaned up. And our guys love this home. Backs up to a creek. Now, this is one I just bought in August. And this was a subject too. This was sitting on the market. It was fully renovated in 2018. And this couple moves in. They have a rough time. They go through a divorce. The husband moves out. There's dogs all over the place. Not in crates like they should be. The whole house smells like dog urine. And although it looks like this on the outside, Tom, and maybe a little more overgrown because it sat for over a year on the market. So this was like the listing photo. Everything was overgrown and pretty smelly. When I went to see it, they were facing foreclosure. And they. They had been in contract twice, but because interest rates were going up so fast, each buyer got to a point where they could no longer buy the home. Either they couldn't qualify for the new rate that jumped up because they didn't lock it in soon enough, or. Or I think one of them lost their jobs before they could close. And so this seller needed a solution. They were about six weeks out from foreclosure, from an auction date, when I called the listing agent and said, what's the story? That's always my first question, what's the story? What's going on here? She tells me all about the divorce, everything going on, and. And I just ask, hey, would the sellers be open to a creative solution like someone just taking over their payments? She had told me that with the last buyers they were in contract with, the sellers were going to have to bring money to the closing table. They didn't have any equity. They did a loan modification the year before, and they had a forbearance. And so they think There was no way they could just sell this and pay commissions and, and not have to come out of pocket. So I said, hey, if we take care of the commissions, I want to make sure you get paid and bring the loan current. Would they be open to us just taking over their payment? I asked for a copy of the mortgage statement. After talking with the sellers and determining that they did indeed want to sell that way it was okay with them, they sent me the mortgage agreement, the mortgage statement, so I could verify the interest rate. 3.875 for the next 29 years. Because they just refied last year or did the loan modification last year. And so now we get 29 years at 3.875% there is a forbearance. We don't have to pay that. We don't touch it. It's only due if the home ever sells. So we're going to leave everything alone. What this allowed us to do. And I brought in a private lender to cover the cost of the agent's commission, including my own commission. I'm a real estate agent. They paid the commissions, the closing costs, and paid the, the sellers $5,000. They each got 2,500 bucks. Divorce situation, they split it. That allowed us to get this property at a payment of around $2,600 a month. If I had to put 20% down on this, not only would my interest rate be like 7 and a half, 8% because it's not under occupied, so it's going to be higher than the seven and a half out there right now. We would have had to pay probably a thousand dollars more per month on our payment. And so that's $1,000 in additional cash flow every single month by buying this sub 2 and it doesn't show up on my personal credit so I can go out and buy a ton of these. And they didn't ask for anything. This is not a balloon because they're not owed anything. So we are just paying. We took over the servicing, right? We took over the username and password on the account, changed out the account info. Doesn't look like anything. Changed to the bank. They're still getting their payment every single month. And so this is our eighth sober living home. Now Anthony says what if the seller wants a balloon in five to seven years? You can negotiate that. A balloon would just be like, let's say they have equity. Actually, let's go back because I did say there's three major types of creative finance. So let me stop my share real quick so you can see My face. So there are three types of seller or creative finance. So there's the seller finance. There's subject to. But then there's the situation where you might need to use both at the same time. And that's if a seller has an existing mortgage and they have equity. So what you do is you can actually take over their existing mortgage. Subject to. You can have them sell or finance their equity over X period of time. So instead of having to pay, let's say they have a $500,000 home, they owe 400,000. You're coming in and you're working on it. It is called a hybrid, where you are now taking the 400,000 subject to. And this seller is creating a note for you for the 100,000. And you can again negotiate whatever terms you want. You can do it at 0% interest, 1%, 2%, 5%, and for whatever length. You can have it be 30 years, you can have it be 7 years, you can have it be 2 years, you can be 12 months. Like totally up to what you and the seller decide. What I love about it is we can go to the seller and say, in order to make this work, you know, you're going to be the bank. I don't walk into what I've heard, my mentor, Pace Morby says I don't walk into Wells Fargo or Bank of America or Chase and tell them I want to pay 3%. They tell me, so if you're going to do this deal with me, what would you want in terms of interest, in terms, all of that. If you, if you want those terms, okay, we can do those terms. It's going to be at my price. If you tell me the price you want, if you want 600,000 for that $500,000 home, we can actually make that work. But I'm going to determine the terms, and maybe I'm not going to give you a balloon, like a payment, true payment, until 10 years from now when the home actually exceeds that value, because we know it will appreciate. But I don't want to buy something where I'm underwater without the time frame to be able to make sure I can get out of it. And so you, you have these levers. You can pull price and terms. If they want their price, I get to pick my terms. If they want their terms, I usually get to get my price. They can't get both, or it's just a deal I will walk away from. Cindy.

I've been driving, so I'm kind of going back a little bit because I couldn't find my, my raise hand on my phone. So when you set. So when you do these, the DSCR or private money or whatever, how long do you wait before you refi.

If I do a DSCR, I'm usually DSCR is a 30 year amort. Amortized loan. So it's just a commercial loan. It is going to be at the higher rate. It will likely have a, it will likely have a prepayment penalty.

Okay. Like three years.

Usually it really depends. Like there's options. Especially right now, DSCR loans are so prevalent that they kind of let you pick how you want to take care of it. So you could pay an extra quarter point for something. You can do a step down like a three, two, one meaning three points. Year one, two points year two. In year three it's one point. Then after that there's no prepayment penalty, there's no cost to refinance out of it. Some are five points. So you really got to talk to the right mortgage broker, the right lender. I've Even heard of 40 year amortization coming out lately. So that makes your payment lower, which allows you to get a better debt to income ratio or DSCR ratio to qualify. So they're, they're trying to find ways because they know real estate will keep going up over time. They're trying to find ways to make these deals work. And lenders are getting creative because their volume's way down, right. Like I heard, it's like 40% of what it used to be. So if you were used to just killing it the last couple of years and then rage jumped over 5% and everything stopped. You got to find a way to make some money. And the only way they make money is if they can actually get deals done. So they're trying to work with us.

And then the other question was. So you said you don't tell them you're going to run a silver living home. Not even your private lender. Or I'm just.

Well, so I think it's the positioning, right? It's how you have the conversation. I wouldn't go to them and say, hey, I have this group home or I have this sober living home and I want to refinance it. It's. I have an investment property, I want to refinance. If they don't ask the question about, well, specifically what is it? I'm not giving up more information than I need to.

What about your first people that you approach? You know, your private money lender, my.

Private lender, 100% knew what we were doing okay, because I explained it. And what I like about him is although he's a guy who's a little bit older and is set in his ways, like he's only doing 10%, two points. He is not changing ever. We were the only ones to ask, hey, is it okay if we don't sell this on the open market, but we refinance it? And here's why. We want to partner with the community when we want to provide housing to people who really need it. I just learned about this thing and we were already mid process on these flips when. When I learned about sober living. So I kind of had to go to him and say, hey, I'd actually like to hold on to these and not market them. And moving forward, he just became our partner on ford of the five we bought in 2021.

Okay.

Partner, meaning it was all debt. It was just, you know, the traditional notes, the 10%, two points. He wasn't a partner in the business. Right. But he came alongside us to help us purchase them. And he was super helpful as well. What I love about private lenders is they're just. He didn't require an appraisal. He would just walk. The property he had bought a hundred flips himself in the area. So he knew what values were and he saw that we did good work and we really developed a relationship and talked for. We couldn't get off the phone without talking for at least an hour, sometimes two. Just about everything. Real estate, the economy, all that stuff. So when you have that relationship, they're very flexible. So I encourage all of you guys to go out to real estate meetups, meet people and build those relationships.

And then my last question was, on your DSCR loans or any type of loan you do where they do the rental comps. So I'm assuming that, you know, you're going to make more than the comps. So they just look at the regular comps. They're not going to look at your history of what you make.

Really depends. So today is different from two years ago, two and a half years ago.

Okay.

It used to be here's comps and here's a market rent survey. And that's what we're going to do. We'll use the lower of the. Your actual lease or income or what we see in the market rent survey today. There are some brokers I like using the one brokerage they're out of. If you listen to Biggerpockets, David Green is on Biggerpockets. He's a host he owns the one brokerage which is a mortgage company. They do a ton of investor loans. So they have such good relationships with their DSCR lenders. They're nationwide. They. That you don't necessarily have to just use the market rent survey. They can, they can base it on short term rental projections.

Okay.

Or you know, some other different ways. Or they can use like your history now I have a two plus year history on my tax returns of our income. They can use that. They can use our bank statements. Like they don't have to just go by what the, the appraiser says. So it makes life so much easier when we can use something more like our real income than.

Right.

Yeah. Joe down the streets renting his house for. But rents have also come up quite a bit, so that helps too. Yeah.

Okay. I'm looking at their site now to see what states they're in.

Mm. But there's one other question I see Alex saying regarding sub to. How do you address the due on sale clause? I don't. 99% of the time, as long as they're getting paid, they will never call that loan due to. I've seen, I'm in a group, right, with 12,000 people doing sub two deals. I've seen maybe five ever talk about, oh, their, their due on sale clause was triggered and even of the times where, where they got a letter, nothing ever happened. The bank was like, oh, okay. Because they don't want to go through foreclosure on a loan that's performing. They're getting paid every single month. All right, that's, that's pretty much it. I will say we've been making these payments. We did just. We took over the, the portal, the servicing portal, put in our information. We do get a power of attorney signed all of that. And now this home just, you know, everything's on like clockwork. It's on auto pay. We're good to go. The sellers were happy with this. Divorce situations are tough. You have to make sure both the husband and the wife separately are on board. Took a while to get the husband on board, but we were like, you know what, what is bad about us establishing a good payment history on this? We cut up all the arrears. It's showing paid on time every single month. We're fixing their credit. And so it's a good opportunity. And you get. So some people ask, well, what if the seller wants to buy a home later? As long as we show that it's being serviced and it's being paid for by someone other than the seller. That person. Right. They're showing. We're making the payment. 75% of the cost gets taken away completely from their debt to income ratio. So they can still go and buy another home. That lender will say, okay, since it's being paid for by someone else, at least 75% will just. We'll ignore it. Real quick, I'm going to get into the questions section. We've been almost an hour and I just want to show you if you want to learn more and you're not already in Sober Living Riches like some of the people on the call are, which is my coaching program. Alex is Cindy, who was just talking, is a student of ours. You can go to sober livingriches.com apply, have a call with me. We'll talk through what that looks like. But we love talking about this. I think what's cool is we cover real estate and sober living. So it's how to run and operate, how to get the right funding sources, but also how to find the right location and how to fund it. Because that's my passion. You build real wealth by owning these properties, by doing five of these rehabs. My first year in 2021, we built in about a million in equity that one year. Right. So buying five fixers doing this process made us millionaires, my wife and myself, in one year. 12 months. That's all it took. And you can do that too. I happen to be buying in California, so that's why those numbers are inflated in Ohio. I don't know if you'll be a millionaire with five deals in one year, but it's, you know, it's possible. And then real quick, we got some testimonials. Antonio said, I listened to your podcast with Brandon from Group Home Riches. You mentioned that you were a teacher, you were making 30,000 a year and now you're making 35,000amonth. That's amazing. I agree. I still wake up super grateful when I started talking about how we were going to throw in real estate training with with Sober Living Riches because I ran a real estate investing group for years and taught this stuff. She said, I am so excited for the coaching calls. She had been just doing the work getting her LLC set up, but she would love to learn how to acquire properties. And then our friend Fontaine jumped in and he actually got connected with the city in California. I jumped on a zoom call with them. They said, $1200 per person. We need three homes right away. Let's go. Once we jumped on and had a conversation and said this is what we want to do. So it's definitely possible to get going really fast. Sal and Christina, we would not be anywhere near where we are in the process of starting our organization without your roadmap to operating in California. Because I'm here in California. We were initially looking to operate in Texas, but we really wanted to stay here. You made the decision to move here a thousand times easier. And then Kevin, of course, very helpful, provided all the information and resources I was looking for. And more coaching calls are great, too. We have a coaching call every single week on Wednesdays, so no one's ever, like, stuck and alone. They can come in and get help, he says. Thanks for being awesome. Cool. So schedule a call sober livingriches.com apply emma not cover some questions do you need group home.